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The exercise of discretion where a pre-nuptial agreement is upheld

Date:24 MAY 2018
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Family analysis: In KA v MA (Pre-nuptial Agreement - Needs) [2018] EWHC 499 (Fam), the Family Division upheld a pre-nuptial agreement where the wife had argued that she had been subject to duress, but made a needs-based award of £2.95m in excess of the sum provided for in the agreement. Georgina Hamblin, director, and Mia Harrison, associate, at Vardags, comment on the case.

What are the practical implications of this case?

The decision in KA v MA (Pre-nuptial Agreement - Needsfollows a line of case law that firms up the existing law on pre-nuptial agreements following the landmark decision in Radmacher (Formerly Granatino) v Granatino [2010] UKSC 42, [2010] 2 FLR 1900.

The decision reinforces the principles that:
  • a pre-nuptial agreement, freely and fairly entered into, with the benefit of legal advice and financial disclosure and which brings about a fair outcome on divorce, will be upheld;
  • there will only be a departure from the terms of that agreement when needs require it; and
  • those needs are being less and less generously interpreted as the weight given to pre-nuptial agreements and the intentions behind them increases.
Needs, therefore, continue to be the trump card, but a less and less generously interpreted trump card.

In this case, Roberts J’s balanced judgment supported the parties’ autonomy in signing such an agreement, but found some of its provisions to be ‘unfair’.

Therefore, she awarded the wife the sum of £2.95m, which, although being well below the £6m the wife sought, was £1.35m more than she would have received under the terms of the agreement.

Roberts J acknowledged that the wife’s needs, as stated at £6m, would ordinarily be reasonable. However, she felt bound to revise them downwards in light of her finding that the agreement was fair in all the circumstances and that both parties had intended to be bound by it.
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What was the background to the case?

At the time of the proceedings, both parties were in their mid-50s and this was a second marriage for each of them. While the wife’s first marriage had not resulted in children, the husband had three sons who, at the time of his second divorce, had all attained the age of 18.

By all accounts, the wife had managed to extricate herself from her first marriage without too much hardship, but the husband had endured protracted and bitter divorce proceedings. The result of this was that when the parties met, the husband made it clear to the wife that he would not be willing to get married again. Accordingly, the parties began to cohabit in 2004, and, later that same year, had a son together.

Over time, the husband’s position softened to the extent that, when the wife made it clear that she wished for them to get married, he told her that he would consider marriage again, but only on the condition that she signed a pre-nuptial agreement. The wife was reticent to sign the agreement, but her desire for herself and the husband to be a traditional family unit with their son overrode this. She did so despite the impact that signing the agreement would have upon her financial claims, should the marriage end in divorce.

This sadly became a reality, and the parties’ marriage broke down in 2016. It was the wife’s case that this was after a relationship of some 11 years, including a period of pre-marital cohabitation and a period of two-and-a-half years where the parties lived in separate houses but maintained their relationship. The husband’s submissions on the length of the marriage were not recorded in the judgment. In any event, Roberts J held that the precise length of the marriage was irrelevant where the wife was not seeking a share of the marital acquest, and therefore chose not to make a finding on this point.

At the time of separation, the wife was deemed to have an earning capacity of some £40,000 gross per year, and a modest property purchased with monies received from the sale of a property held with her first husband. The husband by contrast had enjoyed great success in the international travel and tourism industry, and was able to fund the family’s luxurious lifestyle which included an annual holiday fund of £250,000, classic sports cars and live-in home help. Towards the end of the marriage, the parties were spending in the region of £1m to maintain their lifestyle. From his first marriage, the husband had also retained a substantial property worth £3.35m.

The initial application for financial remedy orders was made by the wife in June 2016. The husband responded to this application by way of his own application in the form of a notice to show cause which sought to hold the wife to the terms of a pre-nuptial agreement entered into in December 2008, some three weeks prior to their wedding day.

The question before the court was, therefore, whether the Radmacher principles had been satisfied so as to cause the parties’ agreement to become one of the relevant factors in the court’s mind when assessing what the division of the martial pot should be.

Interestingly, the wife conceded that she had intended to be bound by the agreement and that she thought the husband’s intentions to preserve his pre-marital wealth were reasonable. However, she contended that she had not been in the position to produce counter-proposals as she was afraid that the husband might back out of the marriage. In evidence she explained that she had only signed the agreement under the duress that the husband would not proceed with the wedding without it.

What was the court’s view on the circumstances in which the pre-nuptial agreement was signed?

Roberts J was sympathetic to the wife’s case that she had felt under considerable pressure to sign the agreement. To provide the court with evidence as to her mental state at the time of signing the agreement, the wife waived privilege in order that her solicitor’s file could be submitted as evidence.

The judge was therefore able to give consideration to the attendance notes taken by the wife’s solicitors at the time, which depicted her clear distress. Notwithstanding this, Roberts J held that, looking to all the circumstances of the case, the husband’s insistence that there would be no marriage absent a finalised agreement, did not amount to duress. She found that his reluctance to remarry, and insistence on a pre-nuptial agreement, had been made clear to the wife throughout their relationship. Importantly, it was with this understanding that the wife had chosen to proceed with the marriage.

Roberts J acknowledged that the wife had faced a difficult decision, and even though it had been made with the best possible intentions, she had nonetheless made it with a clear understanding of what she was agreeing, as well as the impact that this decision would have in the future. Roberts J accepted that, as was usually the case, the wife did not envisage that the marriage would end in divorce at that time and had not presented any counter-proposals to the figures proposed by the husband, but this alone was not sufficient for the agreement to be found to be unfair.

How did the court approach issues of personal autonomy and the husband’s wish for the bulk of his wealth to be left to his children?

Given that the wife put forward a needs rather than a sharing claim, the question of the husband’s personal autonomy and his wish to leave his share of the family business to his children was never one that the court was asked to determine. However, just as was recognised in Radmacher, Roberts J acknowledged that these were the two principal motivations behind the husband’s request that the wife should sign the agreement.

The judge further found that, given that the wife was not only aware of the husband’s wish to protect his assets in this manner but also considered such an action to be reasonable, the agreement should be attributed its proper weight where it was fair to do so. Therefore, while the court did not set out a fixed approach as to enforcement, it upheld the agreement as a document that was constructed to give effect to these specific aims, and thus indirectly supported them.

Although the intention of the agreement was upheld, thus reducing the wife’s claims, Roberts J awarded the wife an award increased from that provided for in the agreement in order to bring about a fair result. The level of this award required the court to dip into the husband’s pre-marital assets in order to meet the wife’s award.

What did the court decide?

Roberts J held that the wife’s needs claim was quite reasonable in the context of the financial assets available in the case and the standard of living enjoyed by the parties towards the end of their marriage. She also stated that had this been a clean slate case, where no pre-nuptial agreement existed, she could well have awarded what the wife was seeking. However, given that there was such an agreement and she had made a finding that it was fair for the wife to be held to it, she could not consider the wife’s claims from a clean sheet perspective. Interestingly, Roberts J decided not to make a finding of fact regarding the length of the marriage, deciding that this was irrelevant where the wife was not seeking a share of the marital acquest.

Therefore, balancing what was provided in the agreement and the wife’s own statement of her housing and income needs, Roberts J awarded the wife a lump sum of £2.73m net (with the wife having met her own liabilities from her award) to meet her housing and income needs, which were to be capitalised. Notably, this involved a housing fund of £1.35m, to reflect the fact that the wife accepted that the property that she was currently living in, worth just under £1m, was perfectly adequate for her needs, albeit too close to the family home to be a suitable solution. In this figure, Roberts J had also allowed for a sum for stamp duty land tax, conveyancing fees and a redecoration fund for the property.

The wife’s income needs were revised down to £100,000 a year, and were to be capitalised on a straight line figure on the Duxbury table for spousal maintenance until the parties’ son finished tertiary education, after which they were to be further reduced to £75,000 for the remainder of the wife’s life.

With these figures in mind, the wife’s income needs were capitalised at just under £1.6m. This final figure awarded to the wife represented just under 12% of the husband’s global wealth on his own figures, reflecting the significance of the agreement.

Interviewed by Anne Bruce.

The full version of this analysis is published on LexisPSL Family (subscription required). Click here to request a free 1-week trial